Matrix, Inc., acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2018. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2018 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2018.
Required:
(1.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as an equity method investment
(2.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix elects the fair-value option.

Question

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The Answer of Matrix, Inc., acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2018. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2018 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2018.
Required:
(1.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as an equity method investment
(2.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix elects the fair-value option.